Introduction
This paper considers concrete options for
addressing the need for policy space under the
WTO SCM Agreement with respect to clean energy.
Essentially all WTO Members that produce clean
energy products maintain government policies
that address the (albeit narrowing) gap between
the cost of clean energy and of dirty (fossil-fuelgenerated) energy. These range from production
subsidies for clean-energy technologies (often
with domestic content conditions) to feed-in
tariff programs to consumer subsidies. At the
same time, some of these policies, have over the
last two years been the subject of an increasing
number of trade disputes, whether trade remedy
actions or challenges in WTO dispute settlement.
The decision of the Appellate Body in the CanadaRenewable Energy case made it clear that many
domestic content requirements or conditions are
not compatible with the SCM Agreement as written.
At the same time, the AB suggested, in its analysis
of “financial contribution” and “benefit” under
the SCM Agreement that clean energy markets,
as structured through government policy, may
operate in different ways from conventional
energy markets, and that the benchmarks in the
SCM Agreement should be applied accordingly.
This suggests some deference to government
policies to ensure that, despite the cost gap, a
viable clean energy market can operate. However,
the AB decision leaves open many questions,
including how to apply the key concepts of the SCM
Agreement, “financial contribution”, “benefit”,
and “specificity” to the distinctive features of
clean energy markets.
The case for policy space with respect to clean
energy policies has largely to be made in terms of
the political and other challenges of adopting ideal
or optimal policies to ensure the relative pricing
of clean and dirty energy reflects climate and
other environmental externalities. Economists
such as Joseph Stiglitz have long argued that a
general carbon tax is the rational way of doing
this. In addition, price distortions have often
resulted from past, and indeed, in some cases,
present subsidization of dirty energy. There is a
very limited logic to giving policy space for clean
energy incentives or support to WTO Members
who undermine the sought-after environmental
benefits by at the same time continuing to subsidize

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dirty energy. While such subsidies have been
viewed as politically necessary, and also a matter
of wealth-redistribution, increasing governments
are finding the resolve to reform them (Morocco,
Indonesia, and Sudan are recent cases, and India
may be soon). In the case of domestic content
requirements, while infant industry arguments
might apply to justify them on economic principle
in certain cases, many of the industries in question
are now well-established. While such requirements
may have been a political necessity to get enough
backing for the initial policy package, it does not
follow that they remain a political necessity, now
that the clean energy market is up and running.

Problem/Opportunity
The uncertainty and potential market instability
from spiraling trade disputes concerning clean
energy policies creates a pressing need but also an
incentive for the major existing players in clean
energy markets to facilitate clarification and
evolution of SCM norms to provide secure policy
space for clean energy initiatives that are justified
by climate and other environmental objectives, as
well as arguably energy security concerns.
At the same time, it is very unlikely that a
consensus could be found among WTO Members
to simply carve out clean energy policies from
SCM disciplines altogether. There was originally
a category of non-actionable subsidies in the
SCM Agreement, which expired and was never
renewed, reflecting considerable disagreement
about the need or desirability for such a category.
Again subject to valid infant industry concerns
in the case of developing countries, however
politically useful in gaining support for clean
energy, domestic content requirements and other
discriminatory measures may actually undermine
environmental objectives, by shifting production
to higher-cost jurisdictions, and therefore making
clean energy, or clean energy technologies, more
expensive than they need to be.
It is notoriously difficult to obtain agreement
on amending existing WTO treaties, especially
outside a trade round. Members are focused on an
effort to achieve results on Doha that have been
long delayed. The issue of policy space under
the SCM Agreement could conceivably be added
to the Environmental Goods and Services (EGS)
negotiations. While this is an area that has been

particularly paralyzed, the Obama Administration
has announced that it will take the initiative to
bring concepts from the APEC agreement in this
area to the WTO negotiating forum, in an effort to
re-energize the EGS talks. At the same time, it is
hard to imagine how one would avoid getting SCM
reform with respect to clean energy entangled
with the negotiation on “rules” reform more
generally.

an interpretive understanding rather than an
amendment makes sense because, as noted:

For these reasons the concrete options to be
addressed in the section of the paper that follows
will focus on alternatives that do not require
formal amendment of the SCM Agreement,
although this may be the longer term result.
Perhaps here the trajectory of the access to
medicines arrangements with respect to TRIPs is a
useful precedent. The opportunity of focusing on
agreement on the interpretation and application
of the SCM Agreement rather than its amendment
arises, at least in part, from the notoriously openended (some scholars would say ambiguous or
even-at least, economically-incoherent) nature
of the key concepts for determining whether
subsidies are susceptible to challenge under the
SCM Agreement, or susceptible to WTO legal trade
remedy action. In addition, as already noted in
the Canada-Renewable Energy case, the AB has
suggested there is some real flexibility under the
SCM Agreement for governments to take measures
to establish and ensure the viability of clean
energy markets, but has left open many questions
about the exact contours of that flexibility.

• there remains, regrettably, an obsessive focus
on Bali/Doha at the diplomatic and negotiating
levels in the WTO

At the present juncture many clean energy
policies, including incentives, are undergoing
reconsideration and reform in light of experience
to date, the rapidly evolving technological and
commercial realities of clean energy markets, and
fiscal pressures. At the same time new initiatives
are being introduced by inter alia major players
such as India and China. This leads to another
opportunity: the possibility of finding policy space
for existing, arguably non-conforming measures
through a time-limited conditional waiver.

Responses
AN INTERPRETIVE UNDERSTANDING ON THE SCM
AGREEMENT
Conceiving at least in the short and medium term
the adjustment of the SCM Agreement through

• past experience with attempts at one-off
amendments suggests would be politically
very difficult to detach a particular project
for amending the SCM Agreement to deal with
clean energy from the thorny issue of rules
reform more generally

• an amendment to a covered agreement can
only be done through consensus among WTO
Members, always very hard to obtain.
• an interpretive understanding could be
promulgated at the Committee level of the
WTO and still have considerable weight in
dispute settlement (as was the case for
example for TBT Committee norms with
respect to international standardization in the
Tuna II AB decision).
• alternately, an interpretive understanding
could be initiated as an open plurilateral
agreement, starting with WTO Members
who have the most at stake with respect to
production and consumption of clean energy.

What Should An Interpretative
Understanding Say, to Provide the
Needed Flexibility? Alternative
Approaches
Approach 1: Apply Article XX of GATT
• In the China-Publications case, the AB raised
the possibility that in some circumstances
GATT provisions might continue to apply so
as to protect the “right to regulate” under
some other more specialized agreement (in
that case, the Chinese protocol of accession).
This would only be the case, however, the AB
suggested in the China-Raw Materials case, if
there was a textual “hook” that related the
provision in question to the GATT.
• Respected scholars disagree on whether, as
a matter of the law as it stands, Article XX
applies to the disciplines in the SCM Agreement.
Several provisions of the SCM Agreement

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appear to suggest that the legal status of a
subsidy and/or action against subsidies would
be determined by applying the GATT and the
SCM Agreement together (for example, 25.7).
An interpretative understanding would be a
legitimate way of resolving the ambiguity.
• an advantage of the Article XX route is that of
certainty. Through cases such as EC-Asbestos
and especially Brazil-Retreaded Tyres, the AB
has charted a route to considerable policy space
for legitimate non-protectionist measures
with, inter alia, health and conservation
objectives (Articles XX (b) and (g).
An
interpretive understanding would reinforce
the dicta suggested in Brazil-Retreaded Tyres,
suggesting that climate change policies would
fall within the objectives of these provisions.
The chapeau of Article XX offers tested
safeguards against abuse of policy space.
• a disadvantage is that there may be Members
who are prepared to grant policy flexibility on
clean energy subsidies who would not want
Article XX to be understood to be applicable to
the SCM Agreement as a general matter. This
might be solved by limiting the understanding
to energy or climate-directed measures, but
would that approach be coherent, or seen as
such by the AB.
• an advantage of an Article XX approach is
that especially under XX (b) a Member would
have to establish the “necessity” of any traderestrictive impact from the subsidy. A that
continues to subsidize substantially dirty
(fossil-fuel) energy, might well have a difficult
time justifying its measure as necessary under
Article XX, as there is the less-trade restrictive
alternative of changing the relative pricing of
clean and dirty energy through the removal
of subsidies to dirty energy. Indeed, the
understanding itself could specify that Article
XX should not be interpreted so as to make
available policy flexibilities on renewable
energy to Members who are unwilling
to undertake other reasonably available
measures to achieve their objectives, in
particular Members who are unprepared to
reform or remove, in an appropriate manner,
subsidies that distort energy prices in favor of
dirty energy.

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Approach II: Define or Clarify the Concepts
of “Benefit”, “Financial Contribution” and
“Specificity” in the SCM Agreement as they Apply
to Clean Energy Subsidies
As a general matter, in order for a subsidy to be
subject to challenge in WTO dispute settlement
or to be targeted with countervailing duties by a
WTO member, it must be established that there
is a financial contribution by government, that
there is a benefit conferred, and that the subsidy
is “specific”. All three requirements must be met.
An interpretive understanding could focus on
insuring that each of these requirements is read
in such a way as to respect the need for policy
space for legitimate measures aimed at increasing
the use of clean energy for climate mitigation and
other important publically-interested reasons.
Specificity
Article of the SCM Agreement reads:
Where the granting authority, or the legislation
pursuant to which the granting authority operates,
establishes objective criteria or conditions
governing the eligibility for, and the amount of,
a subsidy, specificity shall not exist, provided
that the eligibility is automatic and that such
criteria and conditions are strictly adhered to.
The criteria or conditions must be clearly spelled
out in law,regulation, or other official document,
so as to be capable of verification.
(c) If, notwithstanding any appearance of nonspecificity resulting from the application of the
principles laid down in subparagraphs (a) and (b),
there are reasons to believe that the subsidy may in
fact be specific, other factors may be considered.
Such factors are: use of a subsidy programme
by a limited number of certain enterprises,
predominant use by certain enterprises, the
granting of disproportionately large amounts of
subsidy to certain enterprises, and the manner
in which discretion has been exercised by the
granting authority in the decision to grant a
subsidy.In applying this subparagraph, account
shall be taken of the extent of diversification of
economic activities within the jurisdiction of the
granting authority, as well as of the length of time
during which the subsidy programme has been in
operation.

• An interpretive understanding could delineate
what would be acceptable as “objective
criteria or conditions” in the case of clean
energy subsidies. This would be based, in the
first instance, on recognizing that increasing
the use of clean energy relative to energy
that contributes to climate change and to
other environmental and health problems is
a legitimate objective of subsidies policies in
this area. As an indicative matter illustrative
lists might be developed of design features and
operational practices that should be presumed
to be consistent with the language “objective
criteria and conditions” and others that are
likely to be problematic, under the first and/
or the second paragraph reproduced above.
Financial Contribution
• there is considerable uncertainty and debate
about whether and in what circumstances feedin tariff schemes for clean energy constitute
a “financial contribution” by government.
There are at least two kinds of situations: one
is where the government requires that private
operators purchase clean energy generation
at a price higher than that for dirty energy,
and another is where the government itself is
involved in the purchase of the energy, which
could be for delivery through a state monopoly
or state enterprise or for resale to private
actors (where the government is playing the
role of market operator, as was the case in the
Canada-Renewable Energy dispute).
In addressing the relevant provisions of the SCM
Agreement (particularly on “price” support,
providing goods and services other than general
infrastructure or purchasing goods, and entrusting
and directing private bodies) an interpretive
understanding might include the following
principles:
• because of differences in environmental
externalities, among others, clean energy
and fossil-fuel generated energy are not like
products or services.
• measures that address the relatively higher cost
of generating clean energy should be presumed
not to provide a financial contribution clean
energy market actors unless they are shown to
be in a quantity greater than that required to

address fully the higher cost of clean energy
generation relative to fossil-fuel generation
• likewise such measures shall be deemed not to
provide “price support” within the meaning
of Article 1 of the SCM Agreement
Benefit
Here the interpretive understanding could build
on the AB decision in Canada-Renewable Energy
and might include interpretive principles along
the following lines:
• the determination of “benefit” under the SCM
Agreement requires a comparison against with
an appropriate market benchmark. Clean
energy markets have different characteristics
than conventional energy markets. This
must be taken into account in choosing an
appropriate benchmark.
• in order to confer a “benefit” a challenged
measure would have to provide a competitive
advantage to the beneficiary over other
participants in the clean energy market
• measures targeted at addressing the cost
difference between producing clean energy
and conventional energy should be presumed
not to confer a benefit, unless the magnitude
of the financial contribution is significantly
out of proportion to this goal.
Domestic Content Requirements
• it is often claimed that domestic content
requirements are necessary for gaining political
support for incentives and other measures to
support clean energy. This may have been
true at some point in time in the past, but it
may no longer be true, especially where the
programs in question are now well-established
and have constituencies supporting them for
other reasons.
• domestic
content
requirements
are
unambiguously prohibited under the SCM
Agreement
• flexibility for new measures of this kind could
conceivably be found in the case of developing
countries be found through interpreting the
infant industry provisions of the GATT (Article

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XVIII:C as applicable to the SCM Agreement,
on a similar theory as that discussed above in
relation to Article XX
• an interpretive understanding could facilitate
the conversion of SCM-inconsistent domestic
content requirements into other kinds of WTOconsistent measures that ensure that recipients
of clean energy subsidies provide benefits to the
local economy. As a general matter, it could
be affirmed that conditions such as training or
hiring of local workers, and technology transfer
(subject to any specific TRIPs disciplines)
should be presumed to be consistent with
GATT, TRIMs, and SCM, provided they do not
discriminate against imports or violate MFN.

Waiver
An alternative, or perhaps even a complement, to
an interpretive understanding could be a waiver for
existing clean energy policies pursuant to Article
IX (3) of the WTO Agreement. Waivers have been
not infrequently used to deal with new challenges.
A recent example is the waiver for measures
to implement the Kimberly Accord on conflict
diamonds.
• a waiver must be time-limited and may be
subject to terms and conditions
• a disadvantage of a waiver is that, as a matter of
WTO practice, it must be enacted by consensus
whereas, as noted above, an interpretive
understanding could take the form of an open
plurilateral agreement
• a waiver, on the other hand, has the advantage
of providing a high degree of legal certainty
and security with respect to a defined set of
policies, a genuine “safe” policy space

The Possible Content of a Waiver
• policies could be defined in terms of objectives
(climate mitigation, addressing environmental
externalities more generally) and design
(supporting clean energy markets, shift from
dirty energy to clean energy, etc.)
• the waiver could be conditioned on removal
of discriminatory aspects of policies within a
set, relatively short time frame (e.g. domestic
content requirements)

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• the waiver could also contain an Article XX
chapeau-like provision requiring that policies
under the waiver not be applied in a manner
that constitutes arbitrary or unjustifiable
discrimination.
• to benefit from the waiver, a WTO Member
could be required to make a notification of the
policies in question, and provide a detailed
plan about removal of discriminatory aspects
within a defined time-frame.
• to benefit from a waiver, a WTO Member
could be required to eliminate or reform
other policies that undermine the objectives
on the basis of which the waiver is given, in
particular, fossil-fuel subsidies.

The Problem of Trade Remedies
• an interpretive understanding of the kind
sketched above would only partly address the
threat to policy space from proliferating trade
remedy actions against clean energy products.
It would certainly not address in any way antidumping actions.
• a recent Cato Institute study has suggested
that, as part of a US-led initiative on
liberalization of trade in environmental goods
and services at the WTO, listed environmental
goods would be completely exempted from
trade remedy actions. This is a desirable
long-term goal. It would likely entail changes
in domestic legislation, depending on the
jurisdiction.
• some scholars, such as Wu and Saltzman,
believe that these kinds of reforms are
inherently political infeasible. However, as
some of the recent disputes have illustrated,
there are also domestic constituencies who
are against imposition of trade remedies, such
as users of the products in question as inputs.
A game changing proposal on exemption from
trade remedies could give additional power to
those constituencies.
If the waiver alternative discussed above were
adopted, there could be an agreement not to take
trade remedy action against any policy covered
by the waiver during the period of the waiver’s
validity, provided the conditions of the waiver

are fully met. Disputes about whether those
conditions are met, for purposes of determining
whether trade remedy action is permissible, could
be stipulated to be subject to arbitration under
the DSU.

Conclusions/Recommendations

more gradualist options could include:

• neither environmental nor economic objectives
are served by a carve out approach of removing
clean energy policies from WTO disciplines
altogether, especially non-discrimination,
even if historically, discriminatory policies
like domestic content requirements have been
part of a political bargain to get clean energy
markets up and running.

• an undertaking by willing WTO Members to
engage in consultations as soon as they are
aware that policies and practices in another
Member may give rise to a trade remedy
action in their jurisdiction (“early warning”)
• an interpretative understanding that positive
environmental and other impacts in the
importing country of the policies and practices
being responded to by trade remedies be
netted out when injury is determined
• an interpretative understanding that a fair
price comparison within the meaning of
Article 2.4 of the anti-dumping agreement
take into account distortions in domestic and
global energy markets that make it difficult
or impossible to compare properly prices
using any of the methodologies prescribed in
the AD Agreement.
• a commitment to publish an objective study of
the costs and the benefits both of the measures
being responded to by trade remedy action as
well as the trade remedies themselves. To the
extent possible, this would include costs and
benefits in the case of both the importing and
exporting countries, as well as global costs
and benefits, including environmental costs
and benefits.

• the immediate, short- and medium-term focus
should be on alternatives to formal amendment
of the SCM Agreement.

• whether the chosen alternative is an
interpretive understanding or a waiver
(or both) policy space should somehow be
conditioned on the elimination or reform of
other policies that undermine the objectives
for which policy space is being granted, in
particular fossil-fuel subsidies.
• protecting policy space against trade remedy
action is a particularly difficult challenge
politically. But there are important domestic
constituencies in many instances whose
interests are harmed by such action. Proposals
that contain trade remedy action may not in
the short-term have political success in the
WTO but they may have a dynamic effect on the
salience of anti-trade remedy constituencies.
• approaches to policy space should work with
trends to reform and re-design clean energy
subsidies for non-trade law reasons, and not
provide a shield for those resisting reform.